ARCP-Cole Deal Questioned by Shareholder Law Firms

Securities attorneys across the U.S. said Thursday they were investigating the proposed $11.2 billion merger agreement between Cole Real Estate Investments and American Realty Capital to see if it was fair to Cole shareholders.

Securities attorneys across the United States said Thursday they were investigating the proposed $11. 2 billion merger agreement between Cole Real Estate Investments, Inc., and American Realty Capital to see if it was fair to Cole shareholders.

The proposed deal, announced Wednesday, was approved by the boards of directors of both companies but still needs shareholders of both REITs to sign off on it. It calls for ARCP to pay 1.0929 common shares valued at $14.59 for each Cole share of $13.82 in cash, 14 percent higher than Cole’s closing price on Tuesday. The transaction is expected to close in the first half of 2014.

“American Realty’s offer appears to be inadequate and not in the best interests of the shareholders,” Scott Holleman, an attorney for Johnson & Weaver, L.L.P. a San Diego-based shareholders rights law firm, said in a news release. “Based on recent cash flow trends and other valuations American Realty’s offer appears much too low.”

That sentiment was echoed by at least nine other law firms that issued press releases between Wednesday and Thursday all stating they were investigating whether Cole’s board of directors had breached their fiduciary duties by agreeing to the proposed merger. They said their investigations would focus on whether Cole shopped the company around before agreeing to the ARCP terms, whether the share price to be paid to Cole shareholders is too low and whether it favors the officers and directors of Cole and not the shareholders.

Tripp Levy P.L.L.C., a New York City law firm, noted in its release that the “offer is well below that of multiples of comparable deals in the industry recently.”

Several of the law firms stated that at least one analyst that follows Cole had set a target price of $15 per share.

On Thursday at the end of trading, Cole shares were $14.25, up 30 cents, or 2.15 percent from the day’s opening. ARCP shares closed at $13.36, up 27 cents, or 2.10 percent, on Thursday.

Robbins Arroyo L.L.P. of San Diego and Phoenix stated in its press release that “Cole is currently experiencing success and growth in its business prospects.”

Cole executives declined to comment Thursday on the law firms’ investigations.

During an exclusive interview with Commercial Property Executive in August, Cole CEO Marc Nemer and Jeff Holland, Cole president and COO, said they were pleased with what they called “record operating results” for the second quarter, which was the firm’s first earning report after being publicly listed on the NYSE.

“Earnings were very strong. We increased our guidance for the remainder of the year,” Nemer told CPE in August. “We were also able to increase the (dividends) distribution rate again.”

Wednesday’s announcement that New York City-based ARCP planned to acquire Cole, a Phoenix-based firm, surprised many in the industry because of their recent history. Six months ago, ARCP tried to acquire Cole Credit Property Trust III, a non-listed REIT, in a hostile takeover bid that reached nearly $10 billion during a five-week public feud. CCPT III rejected three offers made by ARCP’s chairman and CEO Nicholas Schorsch and chose instead to be acquired by its sponsor and asset manager, Cole Holdings Corp. The new entity, Cole Real Estate Investments, Inc. went public June 20.

On Wednesday, executives of both companies said they would be stronger together. The merged company would have 3,732 properties leased to more than 600 tenants in more than 100 million square feet in 49 states and Puerto Rico. The deal, combined with several other large acquisitions ARCP will be closing in the next few weeks, would make ARCP the world’s largest net-lease REIT worth about $21.5 billion.

Other law firms conducting investigations of the proposed deal on behalf of Cole shareholders include: Brower Piven of Stevenson, Md.; The Briscoe Law Firm, P.L.L.C. and Powers Taylor L.L.P., both of Dallas; Ryan & Manisksas L.L.P. of Wayne, Pa.; Pomerantz Grossman Hufford Dahlstrom & Gross and Morgan & Morgan, both of New York City; and Rigrodsky & Long, P.A., of Wilmington, Del., and Garden City, N.Y.